A trade deal that Stephen Harper can’t refuse

APEC trade talks could bring end of supply management in Canada

OTTAWA — Stephen Harper’s foreign policy has been governed by the desire to remain as friendly as possible with the United States, while still maintaining a fig leaf of self-respect.

In recent weeks, that policy has been called into question, as U.S. lawmakers have made a series of policy decisions – Buy America, the new entry fee for travellers, and the Keystone pipeline delay – that have left the impression that Canada’s clout in Washington is somewhere on a par with Turks and Caicos.

Yet, in Honolulu on the weekend, a remarkable shift in Canadian trade policy took place that may, in part, have been an attempt by U.S. President Barack Obama to mend fences with the Harper government.

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At the APEC summit in Hawaii on Saturday, Ed Fast, Canada’s Trade Minister, made some lukewarm noises about this country’s participation in the new Asia-Pacific free trade group that includes the U.S., Australia, New Zealand and six other countries. The resistance to the Trans-Pacific Partnership was blamed on the insistence by some participants, principally the U.S. and New Zealand, that Canada first agree to dismantle the supply management system that puts tariffs on imports of milk, butter and cheese. “We have made it clear that Canada will not pre-negotiate, we believe all of those issues should be discussed at the negotiating table,” said Mr. Fast.

But less than 24 hours later, Mr. Harper was telling reporters that Canada had given a formal indication of interest in joining the TPP “demonstrating our commitment to further deepen trade links in the Asia-Pacific region.” While he defended supply management as “valuable” in fostering a healthy dairy and poultry sector, he said everything is on the table during negotiations.

So what happened to shift opinion? People close to the negotiations said Japan’s decision to explore participation made the difference. While Japanese business is keen to increase its range of free trade deals, the new Prime Minister Yoshihiko Noda is conscious of the opposition that would be created if he granted access to subsidized U.S. and cheap Vietnamese rice.

Since the Americans are keen to bind the Japanese in a trade deal, it seems likely that Japan’s heavily subsidized rice sector will be sheltered, in the same way the U.S. intends to continue to protect its dairy, sugar and peanut producers by introducing a special “liberalization” schedule.

Having carved out an exemption for the Japanese, it looks as though Mr. Obama decided he was in Mr. Harper’s debt and made a similar arrangement for Canadian poultry and dairy, reversing the position of U.S. trade negotiators, who were keen to keep Canada out of the talks.

Peter Clark, one of Canada’s leading trade strategists, said the prospect of Canada joining the talks came up in the discussion between Mr. Obama and Mr. Harper, when the President said he’d like Canada and Mexico to participate. “It was totally unexpected – you’ve got two politicians here trying to make each other look good,” he said. Mr. Harper reciprocated at his press conference in Honolulu when he was asked to comment on the U.S. decision to delay the Keystone pipeline. While he made clear his government’s intention to attempt to diversify the market for Canadian energy exports into Asia, he resisted the urge to take Mr. Obama into the boards. “I think Canadians would be wrong to interpret any of these decisions as against Canada. This is simply political season in the United States and decisions are being made for domestic political reasons that often have little or nothing to do with what other countries may think,” he said.

With the Beyond Borders trade and security agreement likely to be signed by the President and the Prime Minister in early December, this weekend’s development is an affirmation of the Harper government’s prudent policy of reasonable accommodation of the U.S. – progress over the approach of successive Liberal governments, who, in the words of former diplomat Colin Robertson, delighted in “tweaking the beak of the American eagle to underline Canadian independence.”

It’s a good result for the Prime Minister but he is still left with the prospect of dismantling supply management – a system that inflates prices for Canadian consumers and flies in the face of everything else he believes in. Pre-negotiated reform may be off the table but concerted opposition remains among the other nine or so participating countries.

There will be pressure on Canada to phase out protection of the dairy and poultry industries over time and Mr. Harper’s decision to participate in the TPP talks may signal the slow death of supply management, regardless of the assurances to the contrary given in the House of Commons.

A free trade deal that includes the NAFTA countries and Japan is a glittering prize worth potentially billions of dollars, not least for Canada’s beef producers. The country’s economy cannot be held to ransom by 12,000 dairy farmers.